Claiming the Health Coverage Tax Credit with Form 8885

The Health Coverage Tax Credit (HCTC) was a federal tax credit designed to make health insurance premiums more affordable for specific groups of taxpayers, claimed using Form 8885. The law authorizing the HCTC expired on December 31, 2021, and it cannot be claimed for any health coverage months after that date. This information remains relevant for individuals who may need to file an amended tax return for 2021 or prior years.

The HCTC was unique because eligible individuals could receive its benefit in two ways. They could either receive advance monthly payments sent directly to their insurer throughout the year or claim the full credit annually on their federal tax return. Understanding the rules for this expired credit is necessary for those resolving past tax matters.

Determining Eligibility for the Credit

Eligibility for the Health Coverage Tax Credit was restricted to two primary categories. The first group included recipients of Trade Adjustment Assistance (TAA), a federal program that provides aid to workers who lose their jobs as a result of foreign trade. This includes individuals receiving Trade Readjustment Allowances, or those on an approved break from training who would otherwise be receiving those allowances.

The second group of eligible individuals were certain payees of the Pension Benefit Guaranty Corporation (PBGC). The PBGC is a federal agency that insures private-sector pension plans. If a company’s pension plan fails, the PBGC takes over and pays benefits, and individuals aged 55 or older receiving these payments could qualify for the HCTC. In some circumstances, such as the death or divorce of the primary eligible person, a qualifying family member could also become eligible to claim the credit.

Beyond fitting into one of those groups, a person had to have a qualifying health insurance plan. This included many COBRA continuation plans, coverage through a spouse’s employer if that employer paid less than 50% of the cost, or an individual health plan purchased on the private market. A person could not claim the HCTC if enrolled in government health programs like Medicare, Medicaid, or the Children’s Health Insurance Program (CHIP). Eligibility was determined on a monthly basis, meaning a person had to meet all requirements for each month the credit was claimed.

Information and Documentation Needed to Complete Form 8885

To complete Form 8885, you must gather specific information. You will need the total amount of qualified health insurance premiums you paid out-of-pocket for the eligible months. You also need the amount of any advance HCTC payments paid on your behalf. This information is reported on Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments.

Your health plan administrator would have sent you Form 1099-H if you received advance payments. Box 1 of this form shows the total advance payments for the year, while boxes 3 through 14 provide a monthly breakdown. The advance payments you received reduce the final credit you can claim on your tax return. The official 2021 Form 8885 can be found on the IRS website at irs.gov/form8885.

When filling out Form 8885, you begin in Part I by checking the boxes for each month of the year that you were eligible for and elect to take the HCTC. In Part II, you calculate the credit. On Line 2, you enter the total premiums you personally paid for the months you checked in Part I. Do not include amounts from Box 1 of your Form 1099-H in this total.

After entering your out-of-pocket premium payments on Line 2, Line 4 shows your net qualified payments. The amount on Line 4 is then multiplied by 72.5% to determine your total Health Coverage Tax Credit, which is entered on Line 5. You must attach verifiable proof, such as insurance bills and proof of payment, for any premiums you claim on Line 2.

Filing Form 8885 with Your Tax Return

Once completed, Form 8885 must be filed with your annual income tax return, Form 1040. You must transfer the final credit amount from Form 8885 to the appropriate schedule that accompanies your main tax form. This ensures the credit is properly applied to your overall tax calculation.

The total credit amount, calculated on Line 5 of Form 8885, is reported on Schedule 3 (Form 1040), Additional Credits and Payments. For the 2021 tax year, this amount was entered on Line 13c.

If you are filing a paper return, you will physically attach the printed Form 8885, along with all required supporting documentation like premium invoices, to your Form 1040. If you e-file your return, the completed Form 8885 is transmitted electronically with your tax return data. However, the required supporting documents must be submitted separately using Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return.